As the pitchers and catchers report to spring training, optimism for our Minnesota Twins rushes through me.
This is not based on stellar free agent signings, although we acquired some interesting players. It's not due to how we managed to keep our stars -- picturing Cuddyer in a Rockies uniform is difficult to imagine. But I feel hopeful because the Twins have often been a team of two guiding principles -- play hard and know the game. This means that you don't have to prescribe running out ground balls, because that's what you do when you play hard. When you know the game, self-punishment for missing a cutoff player is worse than a kangaroo court fine. While we had injuries last year, we also did not adhere to our principles.
When you think of your financial well-being, are you following a set of rules or are you adhering to fundamental principles? Rules help you comply, but they don't help you think or give you context. Principles ensure that the actions you're taking will help you use your financial means to build a meaningful life.
A rule may be "We will save a certain percent of our income." But here's a principle: "We want our money to be directed to the things that create meaning for us."
This helps develop a philosophy to measure spending, saving and earning. For example, one of my mentors was a coach who took a summer job as a caddy to earn extra income so his family could take a vacation. His principle of creating meaningful family experiences was more important than an image of doing work that others may have considered beneath him.
When people are following the principle of directing their money toward meaningful things, they tend to be focused on experiences, charity and education. They are both future- and present-oriented. One of our clients combines all three of these areas by bringing the kids on an annual camping trip in the mountains sponsored by the husband's college alma mater.
Their days are filled with hikes led by professors and the evenings are filled with lectures. Some of the cost of the trip supports the university. Our client's kids are immersed in nature and fueled by curiosity.
Another principle: "Since uncertainty is a certainty, we will embrace it and protect ourselves from it."
Embracing uncertainty means that you'll try to control the things that you can -- how much you save, how diversified your portfolio is, how you manage your job, what messages you convey to your family and the world about money. You can try to minimize your regular costs and build up credit lines (that you hopefully never use), so that if the unexpected happens at work, you're in a better position to handle it.
One of our clients was in a field that had a lot of uncertainty, so the couple chose to aggressively pay down their mortgage. With interest rates low, this is not the optimal financial strategy. But they felt that if they faced the trauma of losing their job, they didn't also want to lose the house. This worked for them because by adhering to the principle of uncertainty, they bought less than they could afford in the first place.
It is also important to protect yourself from those situations that you never expect. For example, when you buy insurance, you should be protecting against the major things, not the minor ones. You can have a very large deductible on your homeowners' policy if paying the deductible on a claim won't wipe you out.
On the other hand, we see people skimping on disability insurance. We currently have several professional clients living off of disability insurance policies that certainly felt like a waste of money -- until they began collecting on them. These clients have not had to make lifestyle changes because they prepared for uncertainty.
What are the principles that you want to create to be sure that you are not only covering all the bases, but being on top of your game?
Spend your life wisely.
Ross Levin is founding principal and president of Accredited Investors Inc., Edina. His e-mail is ross@accredited.com.